Question

A Price floors and price ceilings can backfire by causing prices to become artificially higher than desired, and to linger at such undesirable levels for long stretches. Why is that? Answer:

B) If exports rise by $70 billion and imports drop by $30 billion, then what’s the net exports change? Remember Net Exports = Exports – Imports Answer:

Answer 1

A) price control mechanism includes price ceiling and price floor. both of these measures are used by the government to support producers and consumers albit one at a time. Price ceiling is imposed below the market price and price floor is imposed above the market price. Because these measures deviate the market from its efficient equilibrium outcome, they are likely to be inefficient. The quantity exchanged decreases as a result. Price ceilings can also result in the evolution of black markets where the price is higher than the market clearing price. In this manner, both price floors and price ceilings can result in higher market price, resulting in long queues of consumers waiting for their number.

B) change in net exports = change in exports - change in imports

= 70 billion dollar - (-30 billion dollar)

= 100 billion dollar.

Net exports are changed by $100 billion.